What are the different types of companies?

Introduction:

A corporation is an entity established by a group of individuals to collaborate and conduct commercial or industrial activities. The formation of a company can vary based on the corporate laws of a country, allowing for different structures tailored to tax and financial liability considerations. Companies can take the form of entities limited by shares, limited by guarantee, or unlimited companies, which also dictate the ownership framework.

Additionally, companies are categorized into private and public entities, each governed by distinct ownership arrangements, legal statutes, and financial reporting standards. While business is commonly perceived as a transactional process to achieve objectives, a company transcends mere transactions; it is an independent entity with stakeholders who invest in its operations and utilize its products or services. Consequently, a company operates as a substantial entity beyond the scope of a simple transaction or contractual agreement.

Classification of Companies:

Companies under Companies Act, 2013

1.      One Person Company

·         Defined by the Act, an OPC is a unique entity structured to have a single member who can also serve as the sole director of the company. Despite the requirement for only one member, this distinctive business model allows for a maximum of 15 directors to oversee its operations. This flexibility in directorship within an OPC provides a balance between individual ownership and corporate governance, offering a streamlined approach for solo entrepreneurs or small businesses to establish and manage their enterprises efficiently under the regulatory framework of the Companies Act.

2.      Private Limited Company

·         A private limited company is a specific corporate structure that can have up to 200 members, with a minimum requirement of two individuals for its establishment. This type of company restricts the transfer of shares, making it a suitable choice for businesses seeking privacy and control over ownership. Additionally, a private limited company must have a minimum of two directors, with the flexibility to appoint up to 15 directors, ensuring robust governance and strategic oversight within the organization.

3.      Public Limited Company:

·         A public limited company, or PLC, is a corporate structure where shares are available to the general public. Unlike private limited companies, there is no maximum limit on shareholders for a public limited company, but a minimum of seven members is required for its establishment. Additionally, a public limited company must have at least three directors, with a maximum of 15 directors allowed. This type of company offers shares to the public, operates under more stringent regulatory requirements, enhancing transparency and access to capital.

Companies Based on Size

1.      Micro Company: A micro company is characterized by its limited scale of operations, and have investments in plant and machinery below Rs.1 crore and an annual turnover not exceeding Rs.5 crore. These thresholds serve as key indicators of the company's size and financial capacity, positioning micro companies as small-scale enterprises with relatively modest production capabilities and revenue generation.

2.      Small Company: Small companies are characterized by their moderate scale of operations. Small companies have investments in plant and machinery not exceeding Rs.10 crore and annual turnovers below Rs.50 crore. These parameters serve as benchmarks to categorize businesses that operate on a relatively larger scale than micro companies but are still considered small enterprises.

3.      Medium Company: Medium companies are entities that fall between small-scale and large-scale enterprises. These companies are characterized by their investments in plant and machinery, which are capped at Rs.50 crore, and annual turnovers that do not surpass Rs.250 crore. This classification places medium companies in a strategic position within the business landscape, indicating a more substantial operational scale and financial capacity compared to small and micro companies.

Companies Based on Liability

1.      Limited by Shares: A company limited by shares is a type of company where the liability of its members is limited to the unpaid amount on their shares as per the Memorandum of Association (MOA). This means that the members are only liable for the unpaid amount on the shares they hold, and their personal assets are protected from the company's debts. The equity shares held by a member represent their ownership stake in the company, and the value of these shares is determined by the company's performance and market conditions. 

2.      Limited by Guarantee: A company limited by guarantee is a unique type of company where the liability of its members is restricted to the specific amount they commit to contribute towards the company's assets. In this structure, members' liabilities are outlined in the company's Memorandum of Association (MOA), specifying the predetermined amount each member guarantees to contribute if the company faces liquidation. 

3.      Unlimited Company: An unlimited company is a business structure where the members have unrestricted liability, meaning there is no limit to their financial obligations. In the event of debts or liabilities, the members are personally liable, and their personal assets can be used to settle the company's obligations. This type of company poses a significant risk to its members as their personal wealth and assets are at stake. 

Companies on the Basis of Control

1.      Holding and Subsidiary Companies: In corporate structures, it is common for a company's shares to be held, either wholly or partially, by another entity. When one company owns the shares of another, it is referred to as the holding company or parent company. The holding company exercises control over the subsidiary through its ownership of the subsidiary's shares. On the other hand, a subsidiary is a company whose shares are owned by a parent company. 

2.      Associate Companies: An associate company is a type of company where another company has a significant influence over its operations and decision-making. This significant influence is defined by owning at least 20% of the associate company's shares. This relationship allows for strategic cooperation and collaboration between the two companies, enabling them to leverage their resources, expertise, and market position to achieve common goals.

Conclusion:

In conclusion, A company is a collective of individuals who join forces to conduct specific legal transactions. Legally, a company is recognized as a distinct legal entity with rights and obligations akin to those of natural persons. Key characteristics of a company include perpetual succession, allowing it to exist until dissolution, the capacity to litigate and be litigated against, and the right to own property in its own capacity. Moreover, companies can be established based on the preferences of their promoters. Companies can take various forms such as limited by shares, limited by guarantee, or unlimited companies. A company limited by shares can further be classified as either private or public. Notably, the legislation introduced a novel company type known as a limited liability company (LLC), offering enhanced liability protection for its members.